Business investment in the UK: July to September 2018 revised results

• Gross fixed capital formation (GFCF), in volume terms, was estimated to have increased by 0.5% to £85.8 billion in Quarter 3 (July to Sept) 2018 from £85.4 billion in Quarter 2 (Apr to June) 2018.

• Business investment was estimated to have fallen by 1.1% to £46.9 billion between Quarter 2 2018 and Quarter 3 2018; this is the third consecutive quarter-on-quarter fall in business investment and the first time this has happened since the economic downturn of 2008 to 2009.

• Between Quarter 3 2017 and Quarter 3 2018, GFCF was estimated to have fallen by 0.3% from £86.1 billion; business investment was estimated to have fallen by 1.8% from £47.8 billion.

• The largest contribution to the 0.5% GFCF increase between Quarter 2 2018 and Quarter 3 2018 came from general government; the assets that contributed to this increase were other buildings and structures and transfer costs, and dwellings.

• The assets that contributed to the fall in business investment between Quarter 2 2018 and Quarter 3 2018 were transport equipment, and information and communication technology (ICT) equipment and other machinery and equipment.

• Between 2016 and 2017, GFCF grew by 3.5% while business investment grew by 1.5%.

The estimates in this release are short-term indicators of investment in non-financial assets in the UK, such as dwellings (residential buildings), transport equipment (planes, trains and automobiles), machinery (electrical equipment), buildings (non-residential buildings and roads) and intellectual property products (assets without physical properties – formerly known as intangibles). This release covers not only business investment, but asset and sector breakdowns of total gross fixed capital formation (GFCF), of which business investment is one component.

Business investment is net investment by private and public corporations. These include investments in transport, information and communication technology (ICT) equipment, other machinery and equipment, cultivated assets (such as livestock and vineyards), intellectual property products (IPP, which includes investment in software, research and development, artistic originals and mineral exploration), and other buildings and structures.

Business investment does not include investment by central or local government, investment in dwellings, or the costs associated with the transfer of non-produced assets (such as land). Business investment is not an internationally recognised concept and it should not be used to make international comparisons, however, GFCF is an internationally recognised standard and is therefore internationally comparable. Please see A short guide to GFCF and business investment for more detailed information, including asset and sector hierarchies.

All investment data referred to in this bulletin are estimates of seasonally adjusted chained volume measures. To see a time series of the data please use our time series datasets.

The Business investment QMI was updated in January 2018 and includes updated information on the quality and methodology used in the production of business investment statistics.

Between Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2018, gross fixed capital formation (GFCF) increased by 0.5%, following two successive falls of 0.6% and 0.8% in Quarter 1 (Jan to Mar) and Quarter 2 respectively.

On a sector basis, the largest positive contribution came from general government, which contributed 0.8 percentage points. This follows four successive quarter-on-quarter falls in general government GFCF. General government data have been revised back to Quarter 1 2017; these revisions are discussed further in Section 13 of this bulletin, Revisions to GFCF and business investment. Private sector dwellings and transfer costs contributed 0.2 and 0.1 percentage points respectively. Business investment made the only negative contribution to GFCF, contributing negative 0.6 percentage points (Figure 1).

Between Quarter 3 2017 and Quarter 3 2018, GFCF decreased by 0.3%. The large rise and counterbalancing fall in private and public dwellings respectively was due largely to the reclassification of English and Welsh housing associations from the public corporations sector to the private non-financial corporations sector. Business investment also contributed negative 1.0 percentage point, while private sector transfer costs contributed negative 0.2 percentage points. General government made a positive contribution of 0.1 percentage points.

Growth in other buildings and structures and transfer costs, and dwellings meant that these assets contributed 0.8 and 0.3 percentage points respectively to the 0.5% increase in gross fixed capital formation (GFCF) between Quarter 2 (Apr to June) 2018 and Quarter 3 (July to Sept) 2018. Transport equipment, and information and communication technology (ICT) equipment and other machinery and equipment made contributions of negative 0.5 and negative 0.1 percentage points respectively (Figure 2).

Between Quarter 3 2017 and Quarter 3 2018, the largest contributions to the 0.3% GFCF decrease came from transport equipment, which contributed negative 1.5 percentage points and ICT equipment and other machinery and equipment, which contributed negative 0.3 percentage points. Dwellings, intellectual property products, and other buildings and structures and transfer costs partially offset these falls, contributing 0.7, 0.5 and 0.2 percentage points respectively.

Transport equipment has contributed negatively to GFCF growth compared with the same quarter of the previous year for five consecutive quarters. Further analysis of transport equipment can be found in Section 6 of this bulletin.

Investment in transport equipment has been broadly declining from its record level in Quarter 3 (July to Sept) 2016 despite being an historically volatile series. The Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) is an important data source for gross fixed capital formation (GFCF) transport equipment, however, it does not differentiate between types of transport equipment. Using other data relevant to transport may give a better indication as to whether the decline is broad-based or whether particular types of transport equipment are responsible.

Figure 3 shows growth rates of GFCF in transport equipment and other indicators of activity in this asset, which show that there has been weakness in the domestic car industry over the period that GFCF transport has been declining. UK trade data show that imports of cars and other transport equipment have been broadly declining since 2016. Imports of other transport equipment is more volatile than the import of cars, which could reflect the high value of some of the goods in this series, such as planes and ships.

In addition, data from the Society of Motor Manufactures and Traders (SMMT) show that since Quarter 2 (Apr to June) 2017, registrations of new cars have been falling compared with the same quarter of the previous year, with the exception of Quarter 2 2018. This may have been due to weakness in Quarter 2 2017 rather than strength in Quarter 2 2018, as changes in Vehicle Excise Duty meant that registrations declined in Quarter 2 2017.

GDP output data show that the output of the wholesale and retail and repair of motor vehicles and motorcycles industry has fallen compared with the same quarter of the previous year in the last four quarters. However, the decline has not been as sharp as that in investment.

Gross fixed capital formation (GFCF) is now 11.3% above the UK economy’s pre-economic downturn peak of Quarter 1 (Jan to Mar) 2008 and 34.6% above the level seen at the trough of the downturn in Quarter 2 (Apr to June) 2009 (Figure 4). However, growth has weakened over the last year, which can be partially attributed to the declines in business investment and transport equipment investment.

Developments in the housing market can be an important indicator of investment and wider activity in the economy. The estimates in this publication incorporate data consistent with Construction output in Great Britain: October 2018 and new orders July to September 2018, published on 10 December 2018. The Construction output in Great Britain bulletin shows construction increased by 2.1% in the three months to September 2018.

While there are some differences between estimates for the construction of private housing and the private sector dwellings series for gross fixed capital formation (GFCF), these are due largely to conceptual and methodological differences. More information about these can be found in the article Conceptual differences between an aggregate of construction output measures and the GFCF dwellings measure, published in June 2013. We are looking to update this article, with more information on the methodological differences, in early 2019.

Business investment fell by 1.1% between Quarter 2 (Apr to June) 2018 and Quarter 3 (July to Sept) 2018, following falls of 0.4% and 0.7% in Quarter 1 (Jan to Mar) 2018 and Quarter 2 2018 respectively. The last time business investment fell for more than two consecutive quarters was during the economic downturn of 2008 to 2009.

Figure 5 shows that the assets behind the fall in Quarter 3 2018 compared with Quarter 2 2018 were transport, and information and communication technology (ICT) equipment and other machinery and equipment, contributing negative 1.0 and negative 0.9 percentage points respectively. Other buildings and structures made a positive contribution of 0.7 percentage points, while intellectual property products’ contribution was flat.

Compared with Quarter 3 2017, business investment fell by 1.8%. This is the first time that business investment has been lower than the same quarter of the previous year since Quarter 4 2016, and represents the largest fall since Quarter 1 2016. Transport equipment, and ICT equipment and other machinery and equipment were also behind the fall in business investment in Quarter 3 2018 compared with Quarter 3 2017, contributing negative 2.6 and negative 1.0 percentage points respectively. Other buildings and structures, and intellectual property products contributed positive 1.1 and 0.7 percentage points respectively.

Figure 6 shows contributions to quarter-on-quarter business investment growth since Quarter 1 2018. It shows that no one asset has fallen consecutively for each quarter, but falls in ICT equipment and other machinery and equipment have contributed most overall to recent falls, followed by transport equipment, with these being partially offset by overall positive contributions from other buildings and structures. The contribution of intellectual property products over this period was broadly flat.

Data on business investment by industry show that no particular industry group is driving the recent falls in business investment, with both services and manufacturing contributing to the fall in Quarter 1 (Jan to Mar) 2018. Manufacturing contributed most to the fall in Quarter 2 (Apr to June) 2018 while other services and other production made the largest negative contributions to growth in Quarter 3 (July to Sept) 2018.

Within other services, the transport and storage industries made negative contributions to growth in business investment by other services in each of the last five quarters. The only other industries where business investment fell in each of the last three quarters were the manufacture of chemicals and man-made fibres, and agriculture, forestry and fishing.

The falls in business investment for Quarter 1 (Jan to Mar) 2018 through to Quarter 3 (July to Sept) 2018 follow three consecutive quarter-on-quarter increases in 2017. Figure 7 shows that following the fall in business investment during the economic downturn of Quarter 1 2008 to Quarter 2 (Apr to June) 2009, there was a period of strong, albeit volatile growth before 2015. Growth in business investment was more moderate from 2015, before falling in each quarter of 2018 (Figure 7).

In Quarter 3 2018, business investment fell for the first time since Quarter 4 (Oct to Dec) 2016 when compared with the same quarter a year ago. Between Quarter 1 2017 and Quarter 2 2018, business investment grew at an average rate of 1.4% compared with the same quarter a year ago. Between Quarter 3 2009 and Quarter 4 2016, average quarter on same quarter a year ago growth was 2.8%.

Business investment is now 0.6% above the level seen in Quarter 2 2016, the quarter in which the EU referendum took place.

The Bank of England, in its most recent Agents’ summary of business conditions (PDF, 150KB), stated “rising uncertainty, mostly related to concerns around Brexit, contributed to a slight softening in investment intentions”.

The Bank of England also noted in its November 2018 Inflation Report that “investment growth has continued to be lower than would have been expected given accommodative financial conditions, relatively robust global demand and declining slack”.

Another important factor to consider when looking at business investment is the availability or supply of credit. The Bank of England’s Credit Conditions Survey reported a “fall in demand for corporate lending from small businesses” in Quarter 3 (July to Sept) 2018. Demand from large private non-financial corporations (PNFCs) also decreased, while for medium PNFCs, demand for lending was reported to have increased slightly.

In Quarter 3 (July to Sept) 2018, France had the strongest quarter-on-quarter growth in gross fixed capital formation (GFCF) of any G7 nation at 0.9%, followed by Germany at 0.8%. GFCF in the UK and the United States (US) grew at 0.5%. All other G7 countries experienced negative growth in GFCF (Figure 8).

The US had the strongest quarter on same quarter a year ago growth at 5.3%. The next largest quarter on same quarter a year ago growth was seen in Germany where GFCF grew by 3.0%. The UK was one of two countries to experience a fall, with GFCF growth of negative 0.3% ahead of Japan, where GFCF fell by negative 0.6%.

Average quarterly growth in GFCF for the UK has been 0.5% since 2015, with GFCF for Italy increasing by 0.9% on average, followed by the US and France each increasing by 0.8% on average, whilst GFCF for Germany grew by 0.7% on average in the same period.

Since 2015, average quarter on same quarter a year ago growth for the UK has been 2.5% with only Japan (1.4%) and Canada (negative 1.0%) having lower average growth rates over this period.

For more comprehensive comparisons of GFCF, please refer to An international comparison of gross fixed capital formation, published November 2017 and An analysis of investment expenditure in the UK and other Organisation for Economic Co-operation and Development nations, published May 2018.

The estimates quoted in this international comparison section are the latest available estimates at the time of preparation of this statistical bulletin and may have subsequently been revised.

Revisions have been made to gross fixed capital formation (GFCF) and business investment back to Quarter 1 (Jan to Mar) 2017, in line with National Accounts Revisions Policy. These are due mainly to taking on later source data in addition to revisions due to seasonal adjustment.

The negative 0.3 percentage points Quarter 3 (July to Sept) 2018 downward revision to GFCF growth was due mainly to the incorporation of improved government estimates, due largely to the receipt of final outturn data for England. Later data from the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) affected the business investment component of GFCF (Figure 9).

These data led to downward revisions in Quarter 3 2018 particularly for the asset other buildings and structures and transfer costs, which was revised downwards by 2.2 percentage points. On a sector basis, general government investment was revised downwards by 3.6 percentage points.

The incorporation of improved government estimates also led to revisions in general government in each quarter back to Quarter 1 2017. Quarter 2 (Apr to June) 2018 was revised downwards by 3.6 percentage points while Quarter 1 2018 was revised upwards by 2.5 percentage points. In addition to the receipt of final outturn data for England, some of the revisions to government investment were also due to the reclassification of the Mersey Gateway project, with more accurate information now available as to when this activity took place. More information about the Mersey Gateway project revisions can be found in the GDP quarterly national accounts, UK: July to September 2018 release.

Revisions to GFCF in 2017 were due mainly to positive revisions to other buildings and structures and transfer costs, partially offset by negative revisions to transport equipment, and dwellings. On a sector basis, general government was the main driver behind the overall revision, with growth for business investment between 2016 and 2017 revised downwards by 0.3 percentage points.

Business investment was revised upwards by 0.1 percentage points in Quarter 3 2018 from the provisional 1.2% fall. Growth in Quarter 2 2018 was revised upwards by 0.3 percentage points while Quarter 1 2018 was revised downwards by 0.2 percentage points (Figure 10). Revisions to business investment growth in Quarter 2 and Quarter 3 2018 were due mainly to revised and later data from the QCAS Survey. Revisions to earlier quarters were due largely to later data from Financial Inquiries.

International business investment comparisons are not available on a like-for-like basis, as the compilation of European statistics on business investment differs from the data provided within this release. However, European estimates of business investment provided by Eurostat, the European statistical office, can be found on the Eurostat website.

Business investment in the UK accounts for over half of total gross fixed capital formation (GFCF).

The GSS Business Statistics – interactive user guide is an interactive tool to help you find what business and economic statistics are available and choose the right data for your needs.

We publish the following statistical releases, which provide complementary information on UK business and economic performance:

• Profitability of UK companies – quarterly data on capital employed by private non-financial corporations (PNFCs); contains annual, net and gross rates of return (expressed as percentages) on capital used by PNFCs

• Quarterly national accounts – includes UK data on GFCF and changes in inventories

• UK Economic Accounts – quarterly detailed estimates of national product, income and expenditure, UK Sector Accounts and UK Balance of Payments, including data on GFCF

• UK National Accounts, The Blue Book – annual publication of the UK National Accounts, including data on GFCF

The Business investment Quality and Methodology Information (QMI) report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• uses and users

• how the output was created

• the quality of the output including the accuracy of the data

The changes signposted in this bulletin have not yet been reflected in either the Quarterly Acquisitions and Disposals of Capital Assets Survey QMI or the Business investment QMI, but changes will be incorporated into revised QMIs in the future. We updated the Business investment QMI on 30 January 2018.

Adjustments

Large capital expenditure tends to be reported later in the data collection period than smaller capital expenditure. This means that larger expenditures are often included in the revised (month 3) results but are not reported in time for the provisional (month 2) results, leading to a tendency towards upward revisions in the later estimates for business investment and gross fixed capital formation (GFCF). Following investigation of the impact of this effect, from Quarter 3 (July to Sept) 2013, in the provisional estimate a bias adjustment is introduced to business investment and its components. The bias adjustment has been removed in this revised release.

Survey response rates

Table 2 presents the provisional, revised and final response rates for the Quarterly Acquisitions and Disposals of Capital Assets Survey (QCAS) for the latest quarters. Estimates in this release are based on the Quarter 3 (July to Sept) 2018 revised survey results.